Financing Renewable Energy Initiativesin Bangladesh

S. M. Monirul IslamGeneral Manager

Infrastructure Development Company Limited (IDCOL)Dhaka, Bangladesh

Ankara, Turkey24 June 2013

An Overview of IDCOL A fully government owned financial institution

Started operation in 1997

Largest financier in private sector infrastructure projects in Bangladesh

Market leader in renewable energy sector

Funded by the government and multiple development partners i.e. the World Bank, ADB, IDB, KFW, GIZ, GEF, GPOBA, SNV, JICA, etc.

Snapshot of RE Initiatives

Project Target Achievement

SHS Program 4 million by 2015

2 million by Feb 2013

Domestic Biogas Program

100,000 by 2016 27,329 by 2012

Solar Irrigation Program 1,500 by 2016 41

Solar Mini Grid 50 by 2016 1

Solar Powered Telecom BTSs

As per demand 98

BiomassGasification Project

50 by 2016 2

Biogas Based Electricity Project 50 by 2016 5

Improved Cook Stove Program

1,000,000 by2017

Recently launched

Program Structure - SHS

Supply Equipment

Pay for Equipment

Seeks grant & loan

Provide grant & loan

IDCOL

Technical Standards Committee

SuppliersSeeks approval

Provides approval

Household

Sells SHS & provide service

Pay down-payment & installment

Operations Committee

NGO/POPO Selection Committee Select POs

Applies

Donors

Grant & soft term

credit

Fund Flow and Role of Partners

Multilateral Agencies

• Provides grant and soft loans

• Provides technical assistance needed

GoB IDCOL

• Provides grants to reduce SHS cost and for capacity building

• Provides soft loans

• Provides training, promo support

• Monitors implementation

PO

• Identify potential customers

• Installs SHS

• Extends micro-credit

• Provides after sales services

Household

Debt ServiceDebt ServiceDebt ServiceDebt Service

• Provides grant and soft loan to IDCOL

• Provides policy support

• Maintain system

• Repay loan in monthly installments

Mode of Financing: an Example

(a) Market Price of 50 Wp SHS USD 400

(b) Buy‐down Grant (Grant A) USD    25 

(c) System Price for Household [(b)‐(a)] USD  375

(d) Down Payment from Household  to PO [15% of (c)] USD    56 

(e) Loan Payable from Household  to PO [(c)‐(d)] USD  319 

Loan Tenor 3 yearsInterest Rate 12‐16% p.a.Monthly Installment Amount USD 8.5

(f) IDCOL Refinance [80% of (e)] USD  255 

Loan Tenor 5~7 yearsInterest Rate 6~9% p.a.

Quality Control Mechanisms

• Physical inspection by technical inspectors• Verification of collection efficiency by collection efficiency inspectors• Independent technical and financial audit

Physical Inspection

• Training for trainers• PO Staff / customer training• Supplier consultation

Training Programs

Call Centre

IDCOL

POHousehold

Informs POLodges complain

Takes remedial measure

Challenges and Mitigations

Challenges Mitigation

Lack of a business model

A social enterprise model with an ultimate goal of commercialization;

Presence of multiple POs which ensures healthy competition

Phase-reduction nature of grant

Lack of institutional capacity

Institutional development grant (Grant-B)

Long-term concessionary credit facility

Staff training provided by IDCOL

High cost of SHS equipments

Capital buy-down grant (Grant-A)

Concessionary credit facility

Lack of awareness The extensive network of the POs

Customer training provided by POs

Lack of quality assurance

Technical Standard Committee

After sales services are provided by the POs

Quality control mechanisms by IDCOL

Absence of local support industries

IDCOL has financed two solar PV assembling plants in Bangladesh

IDCOL provides support for developing other SHS components

Benefits and Impacts

• Living conditions of households have generally improved.• Health hazards of kerosene lamps have reduced.• Household safety and security has improved.• Study hours of children have substantially increased.• Working hours of women have substantially increased for

income generating activities.

• Business hours have increased resulting in increased income.

• A number of petty businesses (hotels, tea stalls, tailor shops, barber shops) have benefited in increased income per day,

• A number of cottage industries / small enterprises have benefited in expansion and employment generation,

• A number of jobs are created in rural areas for both skilled and unskilled people.

• Several mosques, churches and other community places have benefited from the SHSs,

• Clinics, schools, government offices, and other public facilities have also benefited from installation of SHSs.

Household Level

Business Level

Community Level

Key Success Factors

• The Government outlined a clear vision and policy (2002 Power Sector Reform and 2008 Renewable Energy Policy) about brining energy to off-grid areas.

• The Government created enabling environment to support the above mentioned policies (lifting the import duty on solar panel)

• The Government extended full support for the program and various donors have continued to extend financing for the program.

• Institutional, financial and technological models of the SHS Program were carefully designed• Government’s choice of IDCOL as executing agency has played a key role in making the SHS Program a

success. • IDCOL successfully applied a number of checks and balances (technical, financial, and operational) to

ensure quality installation and operation of the SHSs as well as effective management of the Partner Organizations (POs).

• Presence and outreach of various NGOs at grass-root level in Bangladesh played a key role in making the SHS Program a success.

• Business model of SHS program, subsidy provided by IDCOL for POs and households, and growingly low cost of SHS have played key role in increasing the demand.

• Capacity building of NGOs and other market players resulted in more awareness, know-how, and technical capacity facilitating relatively easy adaptation of solar technology.

• Private sector is on the move in solar energy and its dynamism is resulting in technological innovation and intense market competition leading to low cost and greater product quality, user friendliness, customer service.

Policy Level

Institution Level

Technology Level

• Incentivization of IDCOL for other stakeholders (such as solar panel assemblers) also played an important role in opening up the private sector.

• Availability of microcredit facility for the poor to purchase the SHS greatly facilitated it dissemination. Wealth of experience of NGOs in microfinance helped them implement the Program successfully.

• Capacity building of NGOs and other market players resulted in more awareness, know-how, and technical capacity facilitating relatively easy adaptation of solar technology.

Financing Level

IDCOL has developed the platform for commercialization of SHS market in Bangladesh.

Given this objective of market development, IDCOL has taken a phased reduction approach for grants and concessionary refinancing support.

IDCOL expects that once it steps out of this market, the natural market mechanisms will be automatically developed and thus SHSs installation will continue afterward.

Way Forward

12

Thank You

Infrastructure Development Company Limited (IDCOL)UTC Building (16th Floor), 8 Panthapath, Dhaka 1215

Phone: +880-2-9102171~8, E-mail: mislam@idcol.orgwww.idcol.org